The potential for a client to file a lawsuit is a very real situation that professionals face in the construction and real estate industries. It’s important to understand where professional liability insurance comes into play, and how it can protect against claims of negligence, errors, or omissions of service.
Professional liability insurance, often referred to as errors and omissions (E&O) insurance, is designed to protect professionals from claims that arise due to mistakes or failures in the services they provide. This type of insurance specifically addresses the unique risks associated with construction or real estate services, covering and protecting all possible areas of error, making it an extremely valuable investment for professionals.
Why is professional liability insurance important?
Providing a proactive layer of protection allows you to minimize risk.
- Protection against legal claims: Legal fees, court costs, and potential settlements can be expensive, but without insurance, professionals may find themselves paying out of pocket.
- Reputation management: A lawsuit can tarnish a professional’s reputation, even if the claims are unfounded. Professional liability insurance can help manage the fallout from a claim, allowing professionals to focus on their work rather than the stress of legal battles.
- Client trust: Many clients prefer to work with professionals who carry liability insurance. It demonstrates a commitment to accountability and professionalism, which can enhance trust and confidence in the services provided.
Key aspects of professional liability insurance
Particularly in construction and real estate industries, there are specific features and elements that parties should review to ensure proper, industry-specific, protection.
- Rectification coverage: Common in the construction industry, this coverage is associated with expenses that correct or fix errors, omissions, or defects in projects. Most policies require carrier approval before any changes or repairs are made that could affect the coverage.
- Description of professional services: It’s critical to ensure all necessary elements of your business are included in the description of your professional services. If you expand your business to include additional services, you must alert the insurance carrier in advance to expand coverage.
- Subpoena and record request: Many policies will offer coverage for these requests. Notifying your insurance carrier about these requests is important should a claim later arise out of the issue surrounding the records request.
- Claims made verse occurrence: While it is more common for these policies to be written on a claim-made basis, they can be written either way. It’s critical to ensure if you change the coverage type that you have the proper protection.
- Consent to settle or hammer clause: Understand the carriers rights to settle, as well as what your refusal to settle could mean to coverage. The carrier has specific obligations to your organization: being efficient with communication could benefit you in the long run.
Important elements of professional liability insurance policies
When understanding professional liability forms, you should specifically look for these common policy elements while reviewing coverage.
- Coverage scope and exclusions: Ensure the policy clearly defines the types of professional services covered and identifies any exclusions or limitations that may impact potential claims.
- Limits and deductibles: Review the policy’s coverage limits and deductibles to understand the maximum payout and out-of-pocket expenses you could face in the event of a claim.
- Additional coverages and endorsements: Look for any additional coverages, endorsements, or riders that may enhance protection, such as defense costs, prior acts coverage, or specific industry-related protections.
To learn more about how professional liability insurance can benefit your construction or real estate operations, reach out to an MMA broker to explore your options.
